Oxford Journal of Legal Studies Advance Access originally published online on June 18, 2008
Oxford Journal of Legal Studies 2008 28(2):201-243; doi:10.1093/ojls/gqn009
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Corporate Governance and the Importance of Macroeconomic Context
* Reader in Corporate Law, School of Law, Queen Mary, University of London. Email: a.dignam{at}qmul.ac.uk
** Research Associate, School of Law, Queen Mary, University of London.
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Abstract |
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This article seeks to bring a focus to the significance of trade and finance in corporate governance outcomes. It explores the theoretical and historical link between micro-economic-level firm structure and macro-economic institutions such as trade and finance. The more open the economy, it argues, the more difficult it is in the long run to sustain an insider model. It then argues that changes in interdependent aspects of macro-economic policy in the UK and the US—primarily trade liberalization and the end of capital controls—combined with the presence of developed capital markets and a self-regulatory ethos, allowed institutional investors to refocus the market-level rules on shareholders despite the managerial bias of their legal systems, and enabled the emergence of the outsider shareholder-oriented systems present there today. The article then argues that core insider systems such as those in Germany and France operated with different financing arrangements which meant that they were less susceptible to immediate change. However, in the long run global economic conditions have continued to push shareholder-oriented norms on insider systems. The article concludes that if these conditions persist, then governments will lose, or may indeed already have lost, sovereignty with regard to choice of corporate governance system.